Crypto Glossary: Peer-to-Peer (P2P)
Definition: Peer-to-Peer (P2P) in the cryptocurrency ecosystem refers to a decentralized network or exchange mechanism where individuals or nodes interact directly, without the need for intermediaries or centralized control. P2P principles enable users to share resources, conduct transactions, and exchange digital assets in a trustless and secure manner.
Key Terms and Concepts:
- Advertisement: An integral component of P2P trading platforms, advertisements allow users to specify the price, trading amount, and conditions for buying or selling cryptocurrencies directly with other users.
- Maker: In P2P trading, a maker is the user who initiates and publishes an advertisement on the platform, expressing the intent to buy or sell cryptocurrency.
- Release: The act of releasing cryptocurrency from escrow to the buyer by the seller once payment is confirmed, marking the completion of a P2P trade.
- Appeal: A dispute resolution mechanism used in P2P trading when conflicts arise between buyers and sellers. Users can request platform arbitration to facilitate resolution while assets involved remain locked.
- Trade Qualification: To participate in P2P trading, users typically need to complete identification verification (KYC) and enable two-factor authentication (2FA) for security and compliance purposes.
- Fixed Price Advertisement: An advertisement type where the price of the cryptocurrency is fixed and remains unaffected by market price fluctuations.
- Total Trading Quantity: The total amount of cryptocurrency tokens offered in a single advertisement, indicating the trading capacity.
- Order Limit: When posting advertisements on P2P platforms, users can set minimum and maximum limits for fiat or cryptocurrency amounts that takers can transact in a single order.
- Express Mode: A simplified trading mode on some P2P platforms that automatically matches buyers with sellers, streamlining the trading process.
- P2P Zone: A trading mode on P2P platforms where users have the flexibility to manually select their preferred trading partners, offering more control over the trading process.
- Add Payment Method: To facilitate transactions, users must add their payment details, ensuring compatibility between parties involved in the trade.
- Floating Price Advertisement: An advertisement type where the cryptocurrency’s price fluctuates with market changes and is updated at regular intervals.
- Waiting for Crypto to be Released: A status indicating that an order in P2P trading is pending release. It signifies the agreement between the buyer and seller to release assets upon successful completion of payment.
Features of P2P Trading:
- Decentralization: P2P trading operates on a decentralized model, eliminating the need for a central authority. Transactions are validated by network nodes following specific consensus mechanisms.
- Security: P2P blockchain networks are highly secure due to their decentralized nature and strong encryption. Unauthorized access is challenging, enhancing user safety.
- Self-Organization: P2P networks exhibit self-organizing properties, ensuring continuity even if some network nodes are inactive, contributing to reliability and stability.
Drawbacks of Peer-to-Peer Blockchain Networks:
- Scalability Challenges: As P2P blockchain networks expand, they may face scalability issues, impacting transaction speeds, user experience, and overall network performance.
- Regulatory Concerns: The lack of user transparency on P2P exchanges can lead to regulatory challenges, potentially resulting in stricter regulations and compliance requirements.